Forestalling History

Federal Reserve chairman Ben Bernanke can see history coming around the corner, but as humans are wont to do, he believes he can prevent its repetition and aims to.

Bernanke, believing as Milton Friedman did, that during the Great Depression the Fed didn’t provide enough bailout money to key banks, is trying to do the exact opposite with the JP Morgan Chase and Bear Stearns deal, thinking he can prevent history from repeating that catastrophe.

He told the congressional Joint Economic Committee last week that “a recession is a technical term defined by the National Bureau of Economic Research depending on data which will be available quite a while from now,” so he was not “ready to say whether or not the U.S. economy will face such a situation.” However, I imagine that he and his associates already know the facts, but prefer keeping the masses optimistic, as Secretary of the Treasury, Andrew W. Mellon did in the early stages of the Great Depression, telling Americans that they needn’t worry, “the tide of prosperity will continue.”

Yet, despite the optimism and fancy footwork around the word recession, the Fed initiated a deal providing $29 billion to back JP Morgan Chase’s takeover of Bear Stearns. A move that spoke volumes and elicited suspicion from congress too, judging by Democratic senator Christopher Dodd’s musing as to whether “we’ve socialized risk and privatized reward.”

No, Senator, the chairman is trying to halt history in its tracks. He’s attempting to preserve the free market on the backs of the credit hungry and the frugal alike. That’s economic justice, which is a team sport.

However, some economists argue that intervention is a deadly blow to a free market economy. In their view, a meddling, incompetent government artificially sustained the 1920s boom using credit compounded with faulty public policy, to lengthen the suffering experienced during the Great Depression. Holding this belief, followers of economist Murray N. Rothbard might agree that the Feds are once again meddling and supporting shaky businesses instead of letting an unhindered market correct itself.

Apparently the Fed isn’t confident in the market’s ability to function freely and fairly. Maybe that’s because, like greed, it doesn’t self-regulate. And surely that fault will have some other economist trying to stave off history’s repetitious ways in the future, for it seems greed would be too difficult to tackle, being so essential to capitalism; Throwing money at the problem is a much better strategy.